[IN-DEPTH ANALYSIS] Roblox: Reshaping Interactive Entertainment from Gaming to Metaverse

Investment Thesis

Roblox, with its user-generated content-centered metaverse platform, combined the Freemium model and the virtual currency Robux, has built a unique closed-loop ecosystem. In the first quarter of 2025, its daily active users reached 978 million, and the bookings increased by 31% year-on-year to 1.207 billion US dollars. The monetization is supported by high-spending users in North America, and the user growth in the Asia-Pacific region is rapid. The advertising business has huge potential. AI tools have lowered development barriers and optimized cost structures. We expect its revenue to grow by 22% to 4.4 billion US dollars by 2025. Advertising and AI will improve its profit margins. We set a target price of $92.3 for it and are optimistic about its long-term competitiveness in the metaverse and interactive entertainment fields in the long term.

Figure 1: Roblox Stock Performance

Source: TradingKey

The Growing Influence of Video Games

The importance of video games in our life is increasing day by day, and their influence continues to expand. Take the United States as an example. Millennials were the first group to be exposed to PC games and the Internet in their childhood, while Generation Z and Generation Alpha were the first to use mobile devices in their childhood, further promoting the popularity of games. Nowadays, the participation of all age groups in video games continues to rise, especially the proportion of time spent by the younger generation has significantly increased. In the future, as the younger generation is more inclined towards modern entertainment forms such as streaming media, social networks and video games, the stickiness of mobile devices will further increase, and the participation time of video games and their proportion in leisure time are expected to continue to grow. This trend not only reflects the vigorous development of the gaming industry, but also creates unique opportunities for gaming platforms like Roblox.

Figure 2: % Leisure Time Spent per Week per Entertainment Platform

Source: Goldman Sachs Global Investment Research

Who is Roblox?

Roblox was founded in 2004 and is headquartered in California, USA. It is an immersive gaming platform company specializing in user-generated content (UGC). Users can create, share and experience 3D virtual worlds through Roblox Studio (a development tool based on the Lua language), integrating games, creation and social interaction. The platform adopts a Freemium model, offering a basic experience for free. Users can unlock items, privileges or advanced features by purchasing the virtual currency Robux. Roblox achieves profitability through in-app purchases, reward video ads, and e-commerce partnerships with platforms such as Shopify, and is committed to creating a global "metaverse" that integrates gaming, social interaction, education, and business.

How does Roblox build a Closed-loop Ecosystem

Roblox's core profit model is centered on the Freemium strategy, which attracts users for free and diversifies its revenue through in-app purchases of Robux, advanced features, advertising, and brand partnerships.

1. Free Entry: The Roblox platform is open to all players for free, and millions of games attract users to join the ecosystem. Meanwhile, Roblox Studio is provided to creators for free to encourage content creation and further enrich the appeal of the platform.
2. Driving in-app purchases: Robux is the virtual currency of the platform, connecting players with developers. Players can purchase Robux through the app store for in-game consumption, such as virtual items (skins, props), game passes or advanced features, to enhance their gaming experience.
3. Incentive creation: Developers earn Robux by selling virtual items in the game and can exchange it for real currency through DevEx. High-quality content attracts more players, boosts the consumption of Robux, and promotes the prosperity of the ecosystem.
4. Advanced Features: Roblox Premium offers players a monthly subscription fee, including a fixed Robux allowance, exclusive items and transaction discounts, to enhance the experience. Developers can use advanced tools to optimize content quality and increase revenue.

Overall, Roblox attracts users through a free model, with Robux as the core driver for in-app purchases. It combines Premium subscriptions and developer tools to deepen the participation of users and developers, forming a revenue closed loop of users - developers - platform, and achieving a win-win situation for the ecosystem and profits.

How Effective is the Monetization?

User scale and engagement: The foundation for monetization

Roblox, as a game platform centered on user-generated content (UGC), achieves its monetization effectiveness through the Freemium model and the virtual currency Robux. Among them, the most core value of Roblox lies in its large-scale and highly engaged user base. As of the first quarter of 2025, Roblox's DAUs reached 97.8 million, representing a year-on-year growth of 26%, indicating that Roblox's user base is continuously expanding.

Figure 3: Roblox DAUs

Source: Roblox

The total user engagement time on the Roblox platform during the same period reached 21.7 billion hours, a year-on-year increase of 30%, setting a new high in nearly nine quarters. With approximately 97.8 million daily active users, each person spends about 2.2 hours on the platform on average every day. The continuously rising participation duration reflects that content-centered Roblox is increasingly favored by users, with a significant increase in stickiness. This not only creates more monetization opportunities for developers, but also attracts more creators to join, driving a virtuous cycle of content innovation and user growth.

Figure 4: Roblox Hours Engaged

Source: Roblox

Overall monetization efficiency

The continuous growth of user scale and engagement has directly driven Roblox's bookings performance. As of the first quarter of 2025, Roblox's bookings reached 1.2067 billion US dollars, with a year-on-year growth rate of 31%, far exceeding market expectations and demonstrating a strong revenue growth momentum. Meanwhile, the average booking per daily active user (ABPDAU) reached $12.34, with a year-on-year growth rate of 4%. ABPDAU, as the core indicator for measuring the monetization efficiency of users, reflects the average consumption capacity of each user on the platform. Although the 4% growth rate indicates an increase in user spending, it is relatively moderate compared to the 31% increase in bookings.

Figure 5: Roblox Bookings

Source: Roblox

Figure 6: Roblox ABPDAU

Source: Roblox

Differences in monetization ability: region and age

The year-on-year growth rate of Roblox's DAUs reached 26%, and the year-on-year growth rate of bookings exceeded 30%, but ABPDAU only increased by 4%, indicating that new users contributed a lot of engagement time, but their spending power was relatively low. The key reason for this lies in the significant differences in monetization efficiency among different regions and different ages.

High-spending users in the United States/Canada contributed nearly 60% of the bookings but only 20% of the DAUs, while those in the Asia-Pacific region and other areas contributed only 21% of the bookings but accounted for 56% of the DAUs. Due to lower advertising rates and in-app purchase intentions, the monetization efficiency is relatively low, indicating that users in emerging markets are more inclined towards free trials or low spending, which means regional monetization takes a longer time.

Figure 7: Roblox DAUs by Region

Source: Roblox

Figure 8: Roblox Bookings by Region

Source: Roblox

From the perspective of age, users under the age of 13 account for approximately 37%, contributing about 35% of the participation time. However, since children cannot be the target of advertisements (restricted by privacy regulations), their monetization mainly relies on in-app purchases, and their consumption capacity is relatively low. By contrast, the number of users aged 13 and above is close to 60 million, accounting for 61%. They have stronger consumption capacity. Moreover, their hours of engagement is higher than that of users under 13 years old, making them more suitable for advertising monetization (such as reward videos). However, the advertising business is still in the early stage of expansion and has not fully covered this group.

Figure 9: Roblox DAUs by Age

Source: Roblox

Figure 10: Roblox Hours Engaged by Age

Source: Roblox

Overall, Roblox attracted 97.8 million daily active users (DAUs) through the Freemium model. The high engagement (21.7 billion hours) drove the bookings to reach 1.207 billion US dollars in Q1 2025 (a year-on-year increase of 31%). The global ABPDAU was $12.34 (up 4% year-on-year), demonstrating a stable monetization efficiency. Among them, North America is currently the pillar of monetization, while the high user growth in the Asia-Pacific region indicates its huge potential in the future. In addition, the activity level and purchasing power of users over 13 years old are the core of monetization. Therefore, for Roblox, accelerating the monetization of non-paying users through advertising is particularly important.

Unlocking Revenue Potential: Roblox's Advertising Revolution

Roblox has 97.8 million daily active users (DAUs) who spend an average of about 2.2 hours on the platform each day, but the paid conversion rate is less than 2%. In other words, most of Roblox's engagement has yet to be monetized, and advertising is the key tool to turn it into an advantage.

In May 2025, Roblox collaborated with advertising giants like Google to launch reward video ads. Users could receive free Robux or item bonuses by watching the ads. Google's powerful advertising technology and network effects will significantly enhance Roblox's advertising monetization capabilities. The completion rate of reward video advertisements exceeds 80%, and for some games, it even reaches 95%. By rewarding Robux, this move not only encourages developers to increase their revenue share but also boosts users' willingness to make in-app purchases, creating a virtuous cycle. Users over 13 years old prefer interactive experiences, and the potential for advertising monetization is huge. North America remains the core market for brand advertising, but the surge in users in emerging markets such as Asia-Pacific (such as Japan and India) and Brazil has opened up new opportunities for brands. As cooperation with Shopify and others deepens, advertisers will gradually see the potential for return on investment of the Roblox platform. The advertising revenue of only 100 million US dollars in 2024 is expected to see a significant increase.

The Concerns of Roblox

Roblox's revenue has indeed increased significantly in the past few years, with an average annual growth rate of nearly 30% over the past two years. However, despite the outstanding revenue performance, the company's operating income and net profit have continued to suffer losses. Although high operating costs are necessary investments for growth companies like Roblox, the pressure on operating profit margins from the current cost structure cannot be ignored. In particular, stock-based compensation expense significantly pushed up non-cash expenses, directly expanding the net loss. Although high SBC is relatively common in the technology industry to attract AI and advertising technology talents, in the current cautious macroeconomic environment, an excessively high SBC ratio may raise investors' concerns about profitability. However, Roblox currently holds $1.2 billion in cash and cash equivalents, and its operating cash flow over the past twelve months reached $1.03 billion. By contrast, its total debt amounts to 1.8 billion US dollars, demonstrating relatively abundant liquidity.

Figure 11: Financial Performance

Source: Roblox, TradingKey

Figure 12: SBC

Source: Roblox, TradingKey

Valuation

In March 2025, Roblox launched the open-source 3D generation AI model Cube 3D, aiming to reduce development costs, accelerate the production of high-quality content, attract mature users with greater purchasing power, and increase ABPDAU. In the coming months, more AI tools will optimize the game interaction experience, lower the entry threshold for developers, attract more creators to join, and stimulate a virtuous cycle of content innovation and user growth.

With the increase in user engagement, the optimization of age structure, the steady growth of revenue in Europe and America, and the rapid increase in users in the Asia-Pacific market, it is expected that booking will grow 23% to $5.374 billion in 2025, with revenue increasing 22% to $4.4 billion.  The advertising cooperation with Google is an important milestone for the platform's monetization. The high profit margin of the advertising business will drive the improvement of profitability. Combined with AI to optimize R&D efficiency and costs, this will effectively enhance its profitability. Therefore, we set the target price for Roblox at $92.3.

Figure 13: Valuation

Source: Roblox, TradingKey

Risk

The main risks faced by Roblox include the uncertainty of user engagement and monetization trends. If user activity (DAUs) or monetization efficiency (ABPDAU) falls short of expectations, it may lead to a slowdown in revenue and booking growth. If the execution of the advertising business is not good, it may affect the total booking amount. If high operating costs persist, it may limit the expansion of profit margins. Furthermore, global macroeconomic fluctuations and a high-interest-rate environment may undermine investors' confidence in growth stocks and depress valuations. But in the long term, we believe that Roblox is in a favorable position in the gaming/interactive entertainment sector as well as in emerging fields such as the metaverse and the creator economy.